This will be a top market issue that could impact mortgage rates. The markets are evaluating how imposing tariffs, particularly on China and Mexico, could impact consumer prices and therefore possibly increase inflation. Some recent media reports on this issue have been a bit alarmist and are not always balanced on showing the complete picture of positive and negative aspects of tariffs. Below is an overview of this issue and why it will be important to resolve.
Tariffs are a negotiation tool that countries can use to achieve a more fair and balanced trade relationship with another country. It is widely understood that the U.S. and China do not have a fair nor balanced trade relationship. It is very easy for Chinese companies to sell their goods in the U.S. market and very difficult for U.S. companies to sell their goods in the Chinese market. The imbalance of trade has been in the tens of billions of dollars every month for many years. When substantial trade deficits exist continuously for many years, this results in significant long-term harm to the country with the deficit. Their wealth is transferred to the other country, their manufacturing companies are harmed or are shut down, and their manufacturing jobs move to the other country. A good example of this harm was during COVID when for a long time we could not buy toilet paper or hand sanitizer.
The other key aspect of tariffs is Fentanyl. In 2023, an average of 204 Americans died every single day due to Fentanyl. One single dose the size of a pencil tip is fatal. Many of these daily deaths were not from hard core drug addicts, but were from people taking what they thought was a recreational drug that was unknowingly laced with Fentanyl. A disproportionate amount of these deaths are children and young people. China effectively produces all of the Fentanyl in the world, and Chinese companies manage the logistical and financial aspects to distribute Fentanyl to Mexican drug cartels who then distribute the drug to the U.S. Highly addictive drugs such as crystal meth and Fentanyl have killed our youth, ruined lives, and devastated families and entire communities, particularly in rural areas.
The threat of tariffs, or the temporary imposition of tariffs is a very effective trade negotiation tool. Both countries may have an immediate short-term harm, but the country with the large trade surplus has much more to lose long term if they cannot negotiate a fair resolution. Using the threat of tariffs to create a more balanced trade relationship, ideally with a zero average monthly trade deficit, and more importantly to motivate Chinese leaders to end their production of highly addictive drugs that they market to U.S. children would be considered by many people to be a very appropriate and effective use of tariffs. We will likely see fierce debate on tariffs in the coming months, and the outcome of this process will likely impact consumer prices, inflation rates and the future direction of mortgage rates.
This Market Update and similar such communications are for informational purposes only and are based on publicly available information. These materials are general communications, which are not impartial, and are provided solely for discussion purposes, and not in connection with any product or service offering. The opinions and views expressed in this Market Update are as of the date of this communication and are subject to change. Any forward-looking views and statements contained in this Market Update are based on current estimates or expectations of future events or results. Actual results may differ materially from those described in this Market Update. The views expressed in this communication should not be attributed to Guild Mortgage Company as a whole and may not be reflected in the strategies and products offered by Guild Mortgage Company.
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